Dear Hollywood: It's Time To Realize Artificial Scarcity Is Gone... And That's A Good Thing

from the it'll-make-this-all-much-easier dept

If you haven't yet, you really should read Greg Sandoval's excellent report from Hollywood on how the major studios are feeling about Netflix these days. The whole thing is quite enlightening, but can basically be summed up thusly:

The prevailing feeling among the studio managers I spoke with is that Netflix's streaming service will be a good outlet for the least-valuable material. If they have their way, Netflix will be the Internet equivalent of a swap meet, where only the most dated and least popular titles are available. The studios are betting that eventually people will get bored with the service.

Yeah. Good luck with that. But the statement I wanted to focus on was one that preceded that, and which explains why the movie studio execs think the above is even possible:

Netflix takes the scarcity out of the equation, one film industry insider said. People can watch any of the service's commercial-free films and shows anytime they want.

Notice that this is said as if this is a bad thing. And that, right there, is a one sentence summary of all of the industry's problems. It still looks upon scarcity as a good thing, and is seeking ways to bring back scarcity where there is none. This shows a rather confused understanding of economics -- one that doesn't recognize that abundance increases market size and opportunity, while scarcity decreases consumer value and market potential. Abundance is what leads to economic growth. It may require different strategies to capture pieces of that economic growth, but it inevitably leads to greater economic opportunity.

And part of the way that you capture that economic opportunity is to focus on adding value to consumers not taking it away. Yet what these studio execs appear to be doing is exactly the opposite. Consumers like Netflix's setup because it takes away scarcity. They see that as a good thing. They're actually paying for that. And the studios' reaction is that this has to go away? It's incredible. What kind of execs actually look at what consumers like and are willing to pay for... and decide "that has to be shoved aside"? If the studios are flopping it's because of thinking like this.

You always look at the wrong place to declare scarcity. There was never a shortage of distribution of movies (theaters, dvds, rentals, PPV, movie channels, etc). Looking only at distribution, it is clear that there was actually no issue, almost an over supply to the existing demand.

Changing distribution models doesn't change the real scarcity, the one people pay for: Good movies.

infinite distribution of 2 hours of blank video isn't going to do anyone any good. The movies themselves are the scarcity, and until that changes, all the moves in distribution are secondary to the true scarcity.

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That is why what you are paying for when you buy a DVD (or rent a movie, go to the theater, whatever) is for the experience of the movie, not it's distribution or marginal copy cost.

Without standing back a couple of paces and looking at the entire movie deal as a whole, it is easy to get trapped looking and a single whirring cog and think that the entire machine looks and works like that.

I actually paid for content

I've been a pirate for years, I am finally a legit user because of services like Netflix and Pandora. I AM WILLING to pay, so long as it convenient and fairly priced. My responce is simple, take away price and convenience and I back on the high seas (aarrg).

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"There was never a shortage of distribution of movies (theaters, dvds, rentals, PPV, movie channels, etc)"

This is, obviously, a lie. With windowed release dates, there is definitely an artificial scarcity. The "product" is not immediately available in a convenient form, so the market searches for a way to satisfy the demand.

It's like the flow of a river: you can put up as many dams as you want, but when the water's gotta go, it'll go.

Cool, so does that mean that according to the Movie Industry, I am a "Freetard" because I spend $18.95/mo for Netflix? Talk about biting the hand that feeds you (although this is the MAFIAA we are talking about...they just haven't found a hand worth not biting.) I'd hate to see Netflix get destroyed because the MAFIAA are a bunch of idiots who couldn't innovate themselves out of a wet paper bag.

Of course, I am beginning to get the feeling that the MAFIAA thinks everyone who is not part of the MAFIAA is a "freetard," given the regular response here from industry shills whenever someone says something that is not part of the MAFIAA view on things.

Then again, one thing I've learned over the years is that many people who are wrong tend to externalize and blame everyone else for their own inadequacies. Everyone else is a crab in a bucket, keeping them down, when they don't realize they are the only crab keeping themselves down while everyone else is doing quite fine despite them. I see the MAFIAA as having a definite persecution complex, everyone out there is specifically doing things to hurt them (and although they'd like to have all the artists believe that everyone is hurting the artists, many artists are realizing that just isn't true.)

Re: I actually paid for content

I was the same way. I used to pirate movies all the time but since I signed up for Netflix I haven't download a single film. There is so much content (largely TV shows) on Netflix that I don't have enough time to watch the movies I would have downloaded.

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Read this article yesterday..

Other points the articles makes is the film industry exec's are wondering where all the collecting went, and they want that cash cow back. I (and a ton of the commentors on that article) think that people realized they only watch a DVD once or twice at most and that the HD format war put a large hold on collecting.

People didn't want to get vested in yet ANOTHER format to have it disappear too soon. I'm not even 40 yet and I've been through Vinyl, 8 Track, 8mm film, Cassette, Laserdiscs, CD's, BETA, VHS, DVD's, HD, BluRay, and then the myriad of HD audio discs. The industry keeps asking you to buy the same music / video's over and over again because this time it's BETTER !! Collecting might have kept going if the industry didn't pooch itself fighting over a HD format. That lull and squabble allowed Netflix to come in and grow (which I think Mike has mentioned in the past).

A few of the scarcities AC above didn't mention are time and money. The economy dropped out and people are busy and like the convenience, time and money savings that Netflix represents. Once people KNOW that's there, and that it is possible, there is no way to pull back from that.

I had read another Hollywood article the day before saying the industry just now figured out they don't NEED a big Hollywood actor to make a movie successful. I told a friend of mine that Hollywood reminds me of a guy with a bad pickup line that worked once or twice, they are going to keep trying it and trying it until their face is black and blue from being slapped.. because it worked once.

What about the artists?

So we talk all the time about the industry, which we know doesn't represent the artists at all.

How about one article that discusses what artists can actually do to take on this economic abundance and not have the kneejerk reaction of:

"But... But... PIRACY!"

Not saying I don't read them, far from. But you still have a fair amount of people that seem to believe copyright infringement is somehow immoral when that hasn't been proven true nor that it brings up moral issues.

This reminds me of what a food or beverage maker did some years ago. They had this awesome flavor, and it was the one flavor of their product that was always sold out on the shelves. Apparently one day they decided to stop making that flavor. Wtf? Why stop making the one flavor that sells? I dunno, at this point 10 years later my mind thinks they did it so the other flavors would sell >

"What kind of execs actually look at what consumers like and are willing to pay for... and decide "that has to be shoved aside"?"

The copyright industry historically does not compete in a free market. It merely collects government granted monopoly rents. Its sole purpose is to enlarge and expand those rents, not to satisfy their customers.

hat's because they don't really have customers. They have people who are obligated under the law to pay mandatory rents. You tend to treat such people with utter contempt. As can be seen here.

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Thirded. I wasn't ever that big a pirate, just a few movies that looked like they could go either way (be really good or really bad) that I didn't want to end up feeling pissed off about after paying theater prices for. I'd done that far too much already in my lifetime. Avatar was one of them...was very skeptical that it'd be any good, heard mixed reviews, watched MOST of it online, but a little more than half way through I had seen enough to know I'd be pleased enough to pay theater prices, and so I did...twice. Now I'm on Netflix and I love it, can't wait until they get more streaming stuff and lose that whole "only available on disc" bullspit. I even canceled my cable TV subscription cuz I'm so happy with Netflix. So go ahead Hollywood, do away with them, and then watch as I go out of my way to make sure you ass clowns do not get ANY more money from my pocket. Not even a redbox rental for a stay at home date night. Nothing.

Re: Read this article yesterday..

out of touch.

I can't believe how out of touch these guys are with how people consume movies these days.

Most of the people I know in my age bracket (the 23-30 range) rip their DVDs to a hard drive, download new stuff that's not out yet, and stream everything else through Netflix.

Then a bunch of us get together, hook up the laptop with all the content to a TV, then we go through the list and watch what we want, when we want.

Killing streaming wont bring back "the bad old days"
If they succeed in making Netflix suck, then people will stop paying for Netflix. That's all that will happen.

We will never go back to keeping individual movies on shiny plastic disks. That would be like ditching remotes and getting up off the couch to change the channel or adjust the volume. It's not going to happen.

Ah, Netflix

But isn't that crap riddled with DRM and regional restrictions? How am I supposed watch it in Finland with a Linux, and then send a movie to my friend to discuss about it next day? Completely unnecessary jumping through hoops to get it working anyway. Torrenting just works.

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"Of course, I am beginning to get the feeling that the MAFIAA thinks everyone who is not part of the MAFIAA is a "freetard," given the regular response here from industry shills whenever someone says something that is not part of the MAFIAA view on things."

Re: Read this article yesterday..

Other points the articles makes is the film industry exec's are wondering where all the collecting went, and they want that cash cow back. I (and a ton of the commentors on that article) think that people realized they only watch a DVD once or twice at most and that the HD format war put a large hold on collecting.

Yup, that and I really don't see buying the Blue-Ray version of a movie released 30 years ago, when the technology wasn't capable of capturing 1920x1080p, when the DVD version is as good enough. Does "Gone with the Wind" or "Wizard of Oz" really need to be released on Blue-Ray?

Sure, I have Avatar on Blue-Ray, but that movie works well at 1920x1080. My brother bought Gone with the Wind on Blue-Ray, and I cannot see anything in that copy that makes it any more valuable than the DVD version.

Re: What about the artists?

How about one article that discusses what artists can actually do to take on this economic abundance and not have the kneejerk reaction of: "But... But... PIRACY!"

Jay, I've seen a number of articles here. The problem is bleeding edge...artists are just beginning to realize that there is life outside of the box the MAFIAA has put them into, and we are beginning to see an exodus out of that box. Give it time.

Re: Re: Re: Artificial Scarcity Is Gone... And That's A Good Thing

No, everything is free. You pay for bonuses. Like getting to see stories an hour earlier than non-payers. Or lots of Tees. OR, maybe, you can fork out the cash to close Techdirt down. But then you'd go insane from the lack of trolling you'd be able to do.

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"There was never a shortage of distribution of movies (theaters, dvds, rentals, PPV, movie channels, etc)."

Well, thanks for demonstrating up front that you don't understand the issue.

If you're talking about the number of movies in total that are available, you might be correct on some level. But, if you want a specific title (which is usually the problem), there's a massive amount of scarcity.

Want to watch a new movie? Well, first off you have to watch it in a cinema, because the cinema owners are afraid of direct competition. Of course, the number of screens is scarce, and studios have a habit of buying most of them for their big blockbusters. So, if the title you want to watch isn't at your local cinema, you can't easily watch it. Then, the movie will drip down slowly across the other media channels, and not everybody has access to each of these channels. Depending on the channels you have access to, it may be 2 years before you get to see the film - that's scarcity and totally artificial.

Or, you can download it illegally any time you like, of course. See the problem?

"the one people pay for: Good movies."

If only this were true...

"The movies themselves are the scarcity"

...and the media upon which they are delivered to paying customers is not.

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What is your point then? That release windows work?

Insider badges and Crystalballs are easy to replicate at no cost. Given that abundance the price of Insider badges and Crystalballs should be near zero. No one has yet to explain why artificial scarcity is good for techdirt but bad for others.

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TD's content is topical it's news - its currency is what is valued - time is the scarcity and it is a very real one, as old news isn't well, "news" and has little value outside of reference.

Mike makes all content available. He doesn't artificially keep the most popular stories from readers, or only make certain stories available on/through certain devices/services. I can read TD on my phone/comp/tablet etc. If I could only read certain stories on one device, but then others on a completely different device, or I had to have a specific ISP to access the site I probably wouldn't read it as much as it would be too much a hassle for absolutely no reason.

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Well, first off you have to watch it in a cinema, because the cinema owners are afraid of direct competition.

See Paul, this is the sort of thing that makes you so hard to take seriously, because you don't take the time to understand the economics of the situation.

Movie tickets are $10. The theater owner only gets a small amount of that. Theater owners are in the business of selling popcorn, soft drinks, and "the experience". Think of it as the horribly names cwt+rtb thing. The real fans pay to see the movie before it's on sale DVD date.

Remember, it's the on sale DVD date that is the real retail release. Everything before that is "pay extra to see early", selling the scarcity, the desired product.

Or, you can download it illegally any time you like, of course. See the problem?

If you don't see a problem with breaking the law to get what you want, might I suggest you also ask your bank teller the next time for a million dollars? Oh, wait, is the punishment for some laws enough to make you reconsider?

If you are willing to break the law, there isn't much to discuss, because you don't respect anyone else's rights.

So again, what you are saying is that release windows work. And you are saying that the Crystalball is a release window.

All of that has nothing to do with my comments about Insider badges. By putting a (rather high) price on an abundant resource (an insider badge) Mike is creating an artificial scarcity. Why does it work for Mike but not for others?

Re: Re: Re: Re: Artificial Scarcity Is Gone... And That's A Good Thing

Actually, you are wrong.

First, this is an opinion site, not a news site. Certainly, fresh content helps the site but I'm not sure it is timeliness that makes it work.

Second, not everything makes it out of the Crystalball phase (or so Crystalball holders say). Things get vetoed, things get changed - without a Crystalball you would never know (unless someone tells you).

Personally I don't see much value in them so I don't pay. However, at least Mike isn't going out of his way to make the experience worse for people who pay than it is for people who don't, which is what the MPAA does.

I didn't know he charged for the insider tag (I figured it was given to long time/exceptional posters or contributors), but if he does it better be for more than just a badge next to my handle, if not than I don't agree with it and would never pay because it holds little to no value for me. However if there's more, like access to other services/content from other sites that TD has partnered with etc. it's a different story.

However, it works for TD because TD CwF and while many disagree with the site, TD hasn't done much to get an entire generation to hate its practices. TD engages and listens to its fans and detractors, Hollywood can't say the same. Finally, revenues from insider tags aren't cornerstone to TD but if they were and it was in jeopardy because you could get them more easily elsewhere TD would adapt.

I know people that genuinely like going out to movies as soon as they come out. Some of those same people also buy DVDs. The fact is that those scarcities still work *because people are willing to pay for them*. Same goes for music on itunes. Its just that *you* don't like those offerings, so you choose to bitch. Fair enough, bitch away. But its not cool to say a model does not work when you use it yourself - that makes one look like a dumb ass.

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"You always look at the wrong place to declare scarcity. There was never a shortage of distribution of movies (theaters, dvds, rentals, PPV, movie channels, etc)."

None of those options allow a person to watch a specific movie at a specific time as many times as they like. If people are demanding convenience and you're telling them that the film doesn't start for another half hour on pay per view then supply isn't meeting demand. They may compromise and wait the half hour but that's evidence of scarcity.

Re: Artificial Scarcity Is Gone... And That's A Good Thing

"Does that mean free insider badges and Crystalballs?"

You can't pirate Insider Badges and Crystal Balls (well, perhaps the insider badge). The point is that it doesn't have better, less scarce, competition. Unlike Hollywood, which can't stop telling us how it's unable to compete with piracy (or apparently video on demand).

If artificial scarcity meant stuff that they were holding back with something other than laws then I don't think anyone would be complaining.

"However, it works for TD because TD CwF and while many disagree with the site, TD hasn't done much to get an entire generation to hate its practices. TD engages and listens to its fans and detractors, Hollywood can't say the same. Finally, revenues from insider tags aren't cornerstone to TD but if they were and it was in jeopardy because you could get them more easily elsewhere TD would adapt."

Fair enough. Both Hollywood and techdirt sell artificial scarcities, to say that 'artificial scarcity' is gone is clearly rubbish.

The badge is more of a social more than anything else. It lets other TechDirt readers know, "hey, I'm not a free loader. I value Mike's work, and I am willing and able to support him financially"
It's a status symbol. Digital jewellery.

I get what you are saying about the crystal ball. Technically yes, his articles are digital, and they count as an infinite resource.
But your objection to it seems based on a misunderstanding of Mike's argument.

The argument has never been, "don't sell digital goods".

It's, "no matter what you do, digital content WILL be pirated once it's released. Rather than fight a losing battle against the pirates, try to find ways to attach value to that content. -and if it's going to be pirated anyway, why not do it yourself? Then you can at least collect statistics on your audience and earn cool points among your fans"

Early access, interaction with the creator, guarantees of authenticity, and convenience are all ways of attaching value, some fans will find early access worth buying, some wont.

What you are criticizing isn't a knock against TechDirt's credibility; it's evidence that Mike is actually practising what he preaches.

I don't want to watch dubbed movies, which usually come to cinemas 3-6 months after the US release, while in the US it is already on Bluray and DVD. Even worse for series, which need around one year to spread. If I want to watch the movies undubbed which became an Oscar last month, I MUST obtain it illegaly, as in my country there is still NO WAY to buy for example Black Swan (not out until JUNE).

That's a business model for sure! If available I would start using Netflix instantaneously.

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You know what a really good example of artificial scarcity is? Dragon Age II, whose official EU and OC release date is today. Yet, 99% of game stores, both brick-and-mortar AND online, were selling the game before it had officially launched. Not due to the retailers' fault, but due to a breakdown in communication.

This pissed off a good many fans, who paid full price for the game, and could not play it, because the authorisation servers in the EU/OC weren't up yet. A number of these have sworn never to buy another game from the publishers again.

Yes. Some people go to movies. Some buy DVDs. Other would prefer to rent or stream, but they have to wait in line until the studios decide they've made enough money.

By that point, they've already got multiple options for viewing the movie that don't involve the studios at all.

If I want to see a movie the day it hits DVD, but would rather rent it, I don't have that choice. Or maybe I don't like the price point of hitting Blockbuster vs. Redbox, but whatever the case, there's already a free alternative out there with no waiting.

That's the difference. If you can hack into the Crystal Ball or grab yourself a free Insider badge, knock yourself out. But it doesn't change the fact that any item is only worth what people want to pay for it.

I won't pay $20 for a movie I only wanted to rent or stream. So my options are now at $0, which is a hard price to argue with.

So, I'm not saying the model doesn't work. I'm just saying it doesn't work nearly as well as the studios would like it to, and by artificially trapping their product in various windows, they're cutting out people who would be willing to pay, but at lower price points and in other formats.

I understand what you are saying, but please stop arguing against a headline - its a fucking headline! You know why headlines are provocative right? (Holy shit, way to miss the point.) You can't equate Hollywood with a blog.

Right and lots of people are still willing to pay $20 for a DVD when it comes out, just not a lot of people that read techdirt. There is a free alternative to the Crystalball and I choose that.

Mike has a single release window and sells artificial scarcities. Its really not as different than Hollywood as you want to make it out to be. The biggest difference is the scale, Hollywood has millions of people that want their product, techdirt has thousands. Also, the product itself is very different. You feel under-served by Hollywood, I sense the sham that insider badges and crystalballs are - really, we feel the same way and it comes down to price and availability. Hollywood and techdirt over-value their products, nevertheless some people are willing to pay.

Re: Re: Re: I actually paid for content

I love my Roku. I can also buy like 10+ shows or movies from Amazon in a month, on top of my Hulu+ and Netflix subscriptions, and still be saving money vs. my old cable bill, and my TV viewing experience is orders of magnitude better.

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That is why what you are paying for when you buy a DVD (or rent a movie, go to the theater, whatever) is for the experience of the movie, not it's distribution or marginal copy cost.

This is one reason that many people believe that downloading technically unauthorized copies is OK.

Many people have already purchased the content...often repeated times...and so they now feel that downloading is equivalent to "restoring from backup".

I have a copy of The Sixth Sense that has been sitting untouched on my shelf for a few years, and the last time I tried to watch it, the player reported an error. So, I downloaded a torrent of the same movie that I already own. Sure, it's technically infringement, but it wouldn't happen if the movie studios actually treated a sale as a real sale, with warranties of fitness, instead of buying laws in an attempt to make every viewing cost money.

"By putting a (rather high) price on an abundant resource (an insider badge) Mike is creating an artificial scarcity. Why does it work for Mike but not for others?"

Because Mike doesn't whine about "piracy" stealing all of his insider badge sales. Because he doesn't try gaming the legal system to force people to buy them instead of offering them something they might actually value. Because he doesn't try to segment the market artificially because he thinks he might sell more to people in a certain country, or running a certain platform.

The music, movie and (to a lesser extent) gaming industries have all pinned their futures on trying to force people to buy infinite goods under the same terms they would have bought scarce goods. But, the infinite goods are far less valuable, and they're being criticised for not offering goods people actually value. That's the criticism.

"they're being criticised for not offering goods people actually value"

It is clear that you actually value the goods. You are just bitching about how and when. I suspect that if you could suddenly get the 'goods' you value, at the time you want and in the format you want it in, but the price point did not also go down, then you still would not buy. You want to have your cake and eat it too.

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"If artificial scarcity meant stuff that they were holding back with something other than laws then I don't think anyone would be complaining."

What exactly do you mean then? There is no law preventing movies from being released in the theaters and on DVD on the same day. There is no law that stipulates the format in which movies can be delivered. So you must be talking about copyright which stops you from making a copy. Likewise there are laws that prevent me from making my own free copy (or my own free access to, a view is really a copy after all, my browser downloads a copy of the content) of a Crystalball. We are talking about the same thing. You are just bitching.

"What exactly do you mean then? There is no law preventing movies from being released in the theaters and on DVD on the same day. There is no law that stipulates the format in which movies can be delivered."

Those practices have to compete with unauthorised access via file sharing, which is forbidden by law.

"Likewise there are laws that prevent me from making my own free copy (or my own free access to, a view is really a copy after all, my browser downloads a copy of the content) of a Crystalball. We are talking about the same thing. You are just bitching."

No, I'm talking about copyright and you are talking about completely unrelated laws. I accept that I could have been more explicit about the point, but you appear to be splitting hairs.

Here, I'll restate it anyway: if artificial scarcity meant stuff that they were holding back with something other than laws that don't serve a better purpose, then I don't think anyone would be complaining.

The laws stopping you from hacking Techdirt aren't there to prop up Techdirt's business model.

supply & demand

The basic economic concept of supply & demand goes against your theory. The more available something is, the less it is worth. That's why people are still investing in gold and no one is buying up dirt.